Mr. Bellis provided the Financial Report for the
four months ended April 30, 2004.
Mr. Bellis presented an overview of the Financial Reports to the Trustees.
In response to a question from Chairman Ciminelli, Mr. Bellis confirmed that
the cash reserve for margin accounts was still on the balance sheets.

President Zeltmann introduced Dan Cappiello, the
Authority’s Manager of Performance Planning, and Dr. Kent Gardner, Director
of Economic Analysis at the Center for Governmental Research, and asked them
to provide the Trustees with an overview of the Authority’s 2004 Strategic
Planning Conference.

Dr. Gardner said that the conference’s goals were
to identify key issues facing the Authority, facilitate discussions among
key stakeholders and Authority senior staff, resolve pending issues that
affect the Authority’s future and establish a “game plan” for the
Authority’s 2004 strategic planning effort.

Among the stakeholders participating in the
conference were representatives of the Governor’s Office, the New York State
Senate, the Public Service Commission, the Department of Environmental
Conservation, the State Office of Public Security, the Energy Research and
Development Authority, Empire State Development, the New York Independent
System Operator, the Electric Power Research Institute, National
Grid/Niagara Mohawk Power Corporation and Independent Power Producers of New
York.

The strategic initiatives for 2004 that were
developed at the conference are clarifying the Authority’s mission (which
has already resulted in a new corporate mission statement); revising the
Authority’s debt/cash management plan to reflect changing market conditions,
debt retirement and the approaching end of Entergy payments; revisiting the
Southeastern New York governmental customers’ business plan; continuing to
pursue rate cases; and developing and then implementing a succession
management plan.

Vice Chairman McCullough thanked Dr. Gardner for
his presentation to the Trustees.

Mr. Hiney introduced Thomas Tyrrell, Maintenance
Superintendent at the Poletti plant, and asked him to provide the Trustees
with an overview of the recent outage. Mr. Tyrrell explained that the
outage was the existing Poletti plant’s last planned major outage and that
its goal was to carry the plant through until 2008-2010, when it is
scheduled to be shut down. The three maintenance/repair projects undertaken
during the outage included:
(1) pumping mud from the East River intakes, separating the solid components
of the mud from the water and then disposing of the resulting 200 cubic
yards of “mud cake” in a landfill; (2) replacing 12 tubes of various lengths
in the boiler division wall, as well as completing many other boiler
repairs; and (3) replacing/repairing blades in the low-pressure turbine.

In response to questions from Chairman Ciminelli,
Mr. Tyrrell said that the secondary treatment plant built to deal with the
mud was a temporary one and it had been 10 years since the mud was last
pumped out of the intakes.

Responding to a question from Chairman Ciminelli,
Mr. Tyrrell said that the replacement tubes in the boiler division wall
would also warp, but there were other reasons for replacing them other than
the warping.

In response to a question from Chairman Ciminelli,
Mr. Tyrrell explained that the low-pressure turbine blades needed repairs
due to cracks found in the blades most likely caused by the summer 2003
blackout, when they vibrated in a way they were not designed to vibrate
because of the low frequency at which the generator was operating.

President Zeltmann complimented the Poletti staff
on the superb work they had done to analyze the problems that needed to be
addressed during the outage and then working with the vendors to ensure that
everything was accomplished that needed to be.

Mr. Hiney mentioned that the Authority is going
to install off-frequency protection for the turbine blades to prevent such
damage in the future.

The President and Chief Executive Officer
submitted the following report:

SUMMARY

“The Trustees are requested to approve two
allocations of available Replacement Power (‘RP’) or Expansion Power (‘EP’)
totaling 14,000 kW to two industrial companies.

BACKGROUND

“Under the RP Settlement Agreement, Niagara
Mohawk Power Corporation (‘NiMo’), with the approval of the Authority,
identifies and selects certain qualified industrial companies to receive
delivery of RP. Qualified companies are current or future industrial
customers of NiMo that have or propose to have manufacturing facilities for
the receipt of RP within 30 miles of the Authority’s Niagara Switchyard. RP
is the 445,000 kW of firm hydro power generated by the Authority at its
Niagara Power Project (‘Project’) that has been made available to NiMo
pursuant to the Niagara Redevelopment Act.

“Under Section 1005 (13) of the Power Authority
Act, the Authority may contract to allocate or reallocate directly, or by
sale for resale, 250 MW of firm hydroelectric power as EP to businesses in
the state located within 30 miles of the Project, provided that the amount
of power allocated to businesses in Chautauqua County on January 1, 1987
shall continue to be allocated in such county.

DISCUSSION

“On October 22, 2003, the Authority, NiMo,
Empire State Development Corporation and the Buffalo Niagara Enterprise
signed a Memorandum of Understanding (‘MOU’) that outlines the process to
coordinate marketing and allocating Authority hydro power. The entities
noted above have formed the Western New York Advisory Group (‘Group’) with
the intent of better using the value of this resource to improve the economy
of Western New York and the State of New York. Nothing in the MOU changes
the legal requirements applicable to the allocation of hydro power.

“Based on the Group’s discussions, staff
recommends that the available power be allocated among two companies, as set
forth in Exhibits ‘4-A’ and ‘4-B.’ The Exhibits show, among other things,
the amount of power requested by each company, the recommended allocation
and additional employment and capital investment information. These
projects will help maintain and diversify Western New York’s industrial base
and provide new employment opportunities. They are projected to result in
the creation of 139 jobs.

“These RP contracts will be for a term expiring
August 31, 2007, subject to legislation being passed that authorizes
extension of the RP program.

RECOMMENDATION

“The Manager – Business Power Allocations and
Compliance recommends that the Trustees approve the allocations of 13,000 kW
of Replacement Power and 1,000 kW of Expansion Power to the companies listed
in Exhibits ‘4-A’ and ‘4-B.’

“The Executive Vice President, Secretary and
General Counsel, the Senior Vice
President – Marketing, Economic Development and Supply Planning, the Vice
President – Major Accounts – Marketing and Economic Development and I
concur in the recommendation.”

The following resolution, as submitted by
the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the allocation of 13,000 kW of
Replacement Power and 1,000 kW of Expansion Power, as detailed in Exhibits
“4-A” and “4-B,” be, and hereby is, approved on the terms set forth in the
foregoing report of the President and Chief Executive Officer; and be it
further

RESOLVED, That the Chairman, the President and Chief Executive Officer and
all other officers of the Authority are, and each of them hereby is,
authorized on behalf of the Authority to do any and all things and take any
and all actions and execute and deliver any and all agreements, certificates
and other documents to effectuate the foregoing resolution, subject to the
approval of the form thereof by the Executive Vice President, Secretary and
General Counsel.

APPLICATION SUMMARY

Replacement
Power

Company: NFB Carbon Products, LLC

Location:
Niagara Falls, New York

County: Niagara

IOU:
Niagara Mohawk Power Corporation

Business Activity: Manufacturer of
silicon carbide

Project Description: The project intends
to use acheson furnaces at the site for the production of silicon carbide.
Silicon carbide is an industrial commodity that is widely used in abrasives,
ceramics, foundry and steel-making applications. The company plans to
upgrade its existing facilities with an investment of $3,700,000. The
upgrade will include various repairs and improvements, including upgrades
of the acheson furnaces and related transformers and controls, including
material handling and storage equipment.

Prior Application: No

Existing Allocations: None

Power Request: 13,000kW

Power Recommended:
13,000kW

Job
Commitment:

Existing 0
jobs

New 132
jobs

New
Jobs/Power Ratio: 10 jobs/MW

New
Jobs -

Avg.
Wage and Benefits $46,000

Capital Investment: $3,700,000

Capital Investment $285,000/MW

Per
MW

Summary:
The company was formed in 2004 to acquire a portion of the former SGL Carbon
facility and related equipment in Niagara Falls.
The company intends to manufacture crude silicon carbide for use in
metallurgical applications. Electricity costs will be 27% of operating
expenses. The company has received a proposal from a Pennsylvania
firm to buy substantially all of the future production of the plant.

APPLICATION SUMMARY

Expansion
Power

Company: Upstate Farms Cooperative, Inc.

Location:
West Seneca, New York

County: Erie

IOU:
New York State Electric and Gas Corporation (relocating from Niagara Mohawk
Power Corporation service area)

Project Description: The proposed new
165,000-square-foot facility will be built on a 19.9-acre site in West
Seneca. The project cost is estimated to be $27,000,000, which includes
land, equipment, production area and dry, refrigerated and frozen storage
space. The machinery and equipment at this site will be used for
warehousing, receipt, processing and distribution of milk and other dairy
products. The new facility is being built because the company has outgrown
its current facility.

The President and Chief Executive Officer
submitted the following report:

SUMMARY

“The Trustees are requested to approve the
transfer of power allocations for five existing customers that have either
changed their names for various business reasons and/or moved the location
of their business.

BACKGROUND

“Five companies have requested that the
Authority grant approval of their requests for the continued delivery of
Authority power allocations to facilities that have all gained prior
approval for an allocation with pre-existing company names and ownership.
The present owners of these same facilities are now requesting that the
Authority authorize the continuation of the power allocations granted to the
previous company names and ownership associated with these facilities.

“The Trustees have approved transfers of this
nature at past meetings.

DISCUSSION

“The proposed transferees are as follows:

“Alex Meat Corporation (‘AMC’) is a
Brooklyn cold storage facility for the meat packing industry. The company
was approved for a 40 kW Power for Jobs (‘PFJ’) allocation for seven jobs by
the Trustees at their meeting of June 29, 1999. In March 2004, AMC was
sold and the new owner officially changed the name to Alex’s Meat
Distributors. The company will continue to operate out of its Brooklyn
location and honor the existing job commitments.

“Automotive Corporation (‘Automotive
Corp.’) is a manufacturer of automobile and light truck spindles and
knickers that attach the wheel to the vehicle axle. The company was
allocated 425 kW of Economic Development Power (‘EDP’) for 100 jobs by the
Trustees at their meeting of March 28, 2000. Automotive Corp. moved from
its facility in LeRoy to a new facility in Batavia. The company has
requested the transfer of its EDP allocation to its new facility. The
company will honor the employment commitments made in the past for the
former site.

“Graphic Controls
LP, A Tyco Int. LT (‘GCLP’) designs, manufactures and distributes
industrial and medical recording charts. The company was initially approved
for a 300 kW Replacement Power (‘RP’) allocation for 672 jobs by the
Trustees at their January 31, 1989 meeting. On September 26, 2000, the
Trustees reduced this allocation to 250 kW for 408 jobs. In addition, a 600
kW PFJ allocation for 300 jobs was approved by the Trustees at their January
26, 2000 meeting. The company has sold all of its assets to a new company
led by the current management group. The new entity, which will be called
Graphic Controls, LLC, will commit to retain 265 jobs in return for the
allocations..

“Joyco USA
Confectionery, Inc. (‘Joyco’) makes candy and other confectionery
products at its facility in Canajoharie. The company was initially approved
for a 700 kW PFJ allocation for 147 jobs by the Trustees at their April 27,
1999 meeting under the company name Richardson Brands Company. On September
23, 2003, the Trustees transferred this allocation and job commitment to the
new company name, Joyco USA Confectionery, Inc.
In April 2004, Canajo Manufacturing Company, Inc. acquired from
Joyco goods, marketable and transferable title for certain assets including
real estate, and all equipment, machinery, furniture, raw and package
materials free and clear of pledges, security interest, liens, changes,
mortgages, leases or encumbrances of any kind. The new company will continue
to operate at the Canajoharie site and will honor the contract terms and
conditions made by Joyco.

“Republic
Engineered Products, LLC (‘REP’)
manufactures cold-finished steel bars for companies in the automobile
industry. The company has a 7,400 kW EP allocation and a 2,000 kW RP
allocation for 276 jobs. These allocations were transferred to REP from
Republic Technologies by the Trustees at their meeting of September 17,
2002. REP was acquired by Perry Strategic Capital to form a new company,
Republic Engineered Products, Inc. This new company will honor the
employment commitments made in the past under the former name.

RECOMMENDATION

“The Manager – Business Power Allocations and
Compliance recommends that the Trustees approve the transfers of Authority
power allocations to the five companies described herein.

“The Executive Vice President, Secretary and
General Counsel, the Senior Vice President – Marketing, Economic Development
and Supply Planning, the Vice President – Major Account Marketing and
Economic Development and I concur in the recommendation.”

The following resolution, as submitted by
the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Authority hereby
authorizes the transfers of industrial power allocations in accordance with
the terms described in the foregoing report of the President and Chief
Executive Officer; and be it further

RESOLVED, That the Chairman, the President
and Chief Executive Officer and all other officers of the Authority are, and
each of them hereby is, authorized on behalf of the Authority to do any and
all things and take any and all actions and execute and deliver any and all
agreements, certificates and other documents to effectuate the foregoing
resolution, subject to the approval of the form thereof by the Executive
Vice President, Secretary and General Counsel.

The Executive Vice President – Power
Generation submitted the following report:

SUMMARY

“The Trustees are requested to authorize total
capital expenditures of $12,000,000 for the replacement of the stator iron
laminations on five generator stators at the Robert Moses Niagara Power
Project (‘Niagara Project’).

“The Trustees are also requested to approve the
award of a contract to Voith Siemens Hydro Power Generation, Inc. (‘Voith
Siemens’) in an amount of $23.3 million for the fabrication, delivery and
installation of the stator iron laminations for up to12 generator stators at the Niagara Project.

BACKGROUND

“Section 2879 of the Public Authorities Law and
the Authority’s Guidelines for Procurement Contracts require Trustees’
approval for procurement contracts involving services to be rendered for a
period in excess of one year.

“In accordance with the Authority’s Expenditure
Authorization Procedures, the award of non-personal services or equipment
purchase contracts in excess of $3,000,000, as well as personal services
contracts in excess of $1,000,000 if low bidder, or $500,000 if sole source
or non-low bidder, requires Trustees’ approval.

“The Authority’s Niagara Project operates 13
hydroelectric generating units and maintains one generator stator as a
spare. These generators were placed in service in the early 1960s.

“On September 24, 2001, an electrical failure
occurred in Niagara Power Project Unit No. 11 (‘Unit No 11’), which resulted
in severe damage to the generator stator. A generator stator is composed of
two components, the stator winding and the stator iron laminations.

“At their meeting of June 25, 2002, the Trustees
approved the award of a multiyear contract to Voith Siemens for the stator
winding replacement of 14 Niagara Project generator stators (13 in service
and one spare). This contract included fabricating and installing only one
set of stator iron laminations. The initial work under the contract with
Voith Siemens was for the stator winding replacement, as well as the stator
iron lamination replacement for the failed Unit No. 11 generator stator.

“The rehabilitated Unit No. 11 generator stator
was placed into the Niagara Power Project’s Unit No. 7 (‘Unit No. 7’). The
second generator stator to have the winding replaced was Unit No. 7.

“As part of the stator winding replacement
contract, Voith Siemens is responsible for removing the old winding and
performing an Electromagnetic Core Imperfection Detector (‘ELCID’) test,
which indicates the condition of the stator iron laminations. The ELCID
test data taken on Unit No. 7 indicated that the iron laminations showed
signs of insulation deterioration. Additional testing indicated that three
of the four quadrants of the stator had iron lamination problems
necessitating replacement of the stator iron laminations.

“To expedite the stator iron lamination
replacement, the Authority issued a change order to the stator winding
contract with Voith Siemens in the amount of $1,910,000 for the second
stator iron lamination replacement.

DISCUSSION

“The generator stator iron laminations at the
Niagara Power Project are approximately 45 years old. The design life span
of stator iron is approximately 70 years. However, the life span is
shortened due to heating and electrical stator winding failures, requiring
stator iron repairs. Five of the remaining 12 stators have had stator iron
repairs.

“Staff recommends that the Authority replace the
stator iron laminations in the five generator stators that have had stator
iron repairs. Based upon results of the ELCID tests, the stator iron
laminations of up to seven additional stators may also be replaced under the
proposed contract.

“A Request for Proposal (‘RFP’) was issued on
January 19, 2004, for the design, fabrication, delivery and installation of
stator iron laminations for the remaining 12 generator stators at the
Niagara Project. The bid document requires that the existing stator iron be
evaluated prior to the Authority releasing the funding for the complete
replacement of the stator iron laminations.

“On February 23, 2004, proposals were received
from three of the 15 firms that had received bid packages, including any
that may have responded to a notice in the New York State Contract Reporter.
The prices are summarized below:

Bidder

Bid Price (2004 $)

Optional Bid Price

Voith Siemens

$24,896,727

$21,440,886

General Electric

$24,621,622

National Electric Coil

$25,907,900

“Consistent with the Authority’s bid evaluation
procedure, the two lowest bid price proposals were evaluated on the basis of
cost, completeness, schedule, warranty, exceptions taken to the bidding
documents, experience, quality control, safety and adherence to the
Authority’s M/WBE participation goals and Equal Employment Opportunity
requirement.

“An Evaluation Committee with representatives
from Procurement, Engineering, Quality Assurance and Project Management
analyzed the bids, met with the bidders to obtain additional information and
reviewed all the pertinent factors to determine the lowest evaluated and
technically qualified proposal.

“The lower optional bid price submitted by Voith
Siemens as part of its original proposal is based upon a manufacturing
process that maintains fabrication tolerances, during the lamination
cutting, by controlling the cutting die tolerances. This process is
acceptable to the Authority and is used in the industry. Subsequent to
receipt of bids, General Electric was requested to evaluate the feasibility
of using this process, and concluded that they could not implement this
process cost effectively.

“Westinghouse, the original manufacturer of the
existing generators, was acquired by Siemens. Subsequently, Siemens merged
with Voith, forming Voith Siemens. Voith Siemens owns the design drawings
and the dies to cut the stator iron laminations. Voith Siemens plans to cut
the stator iron laminations in Hamburg, New York. These new iron
laminations will be of low-loss design and the stator iron losses will be
reduced by 150 kW.

“The results of this evaluation indicate that
Voith Siemens’ optional proposal is the lowest in price and meets all the
technical and commercial requirements of the inquiry.

“The current schedule and the existing contract
provide for the release of one or two generator stators per year starting in
2004 for stator winding replacement. The proposed contract establishes a
mechanism for implementing stator iron lamination replacement as deemed
necessary. The Authority is under no obligation to release the stator iron
lamination replacement and/or award any of the remaining 12 generator
stators. The estimated term of this contract is seven years through
completion of work on all stators (projected to be December 31, 2011).
Accordingly, based on Voith Siemens’ low price and technically acceptable
proposal, the Trustees are requested to approve the award of a contract to
Voith Siemens in an amount of $23,300,000, including escalation, for a term
of seven years.

“The estimated total Capital Expenditures for
the stator iron lamination replacement program for five generator stators,
including escalation, is $12,000,000. The monies to perform the work in
2004 are included in the Capital Budget submittal for 2004. The Trustees
are requested to authorize a Capital Expenditure of $12,000,000 for the
stator iron lamination replacement in five generator stators at the Niagara
Project. At their meeting of March 20, 2003, the Trustees authorized a
Capital Expenditure of $28,000,000 for the Niagara Power Project Stator
Winding Replacement Program. The Capital Expenditure for the Stator Iron
Replacement Program will be combined with this existing Capital Expenditure
for the Niagara Power Project Stator Winding Replacement Program. If
testing determines that more than five stators require stator iron
laminations replacement, additional Trustees authorization will be obtained.

FISCAL INFORMATION

“Payments will be made from the Capital Fund.

RECOMMENDATION

“The Vice President – Project Management, the
Vice President – Procurement and Real Estate, the Vice President and Chief
Engineer – Power Generation, the Regional Manager – Western New York and the
Project Manager recommend that the Trustees approve the award of a
seven-year contract to Voith Siemens Hydro Power Generation, Inc. in the
amount of $23,300,000 for the replacement of the stator iron at the Robert
Moses Niagara Power Project, and authorize a Capital Expenditure of
$12,000,000 for the stator iron lamination replacement program.

“The Executive Vice President – Secretary and
General Counsel, the Executive Vice President – Corporate Services and
Administration, the Vice President – Controller and Acting Chief Financial
Officer and I concur in the recommendation.”

Mr. Ardolino presented the highlights of staff’s
recommendations to the Trustees. In response to a question from Vice
Chairman McCullough, Mr. Ardolino confirmed that staff is recommending that
iron on units with previous iron failure be replaced.

The following resolution, as submitted by
the Executive Vice President – Power Generation, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for
Procurement Contracts adopted by the Authority, approval is hereby granted
to award a multiyear contract to Voith Siemens Hydro Power Generation, Inc.,
as recommended in the foregoing report of the Executive Vice President –
Power Generation, in the amount and for the purpose listed below:

Contract Award

Award Amount

Projected Completion

Voith Siemens Hydro Power Generation, Inc.
for the

Replacement of Stator Iron Laminations at
Robert Moses Niagara Power Project

$23,300,000

December 31, 2011

AND BE IT FURTHER RESOLVED, That approval is
hereby granted for Capital Funding to be committed in accordance with the
Authority’s Expenditures Procedures for the Capital Projects set forth below
as recommended in the foregoing report of the Executive Vice President –
Power Generation in the amounts and for the purposes listed below:

AND BE IT FURTHER RESOLVED, That the
Chairman, the President and Chief Executive Officer and all other officers
of the Authority are, and each of them hereby is, authorized on behalf of
the Authority to do any and all things and take any and all actions and
execute and deliver any and all agreements, certificates and other documents
to effectuate the foregoing resolution, subject to the approval of the form
thereof by the Executive Vice President, Secretary and General Counsel.

The President and Chief Executive Officer
submitted the following report:

SUMMARY

“The Trustees are requested to authorize the
award of a construction contract in the amount of $3,514,000 to H. Schickel
General Contracting Inc. for the construction of a new visitors’ center and
recreational facility improvements at Hawkins Point, Massena, New York,
across the South Channel from the St. Lawrence/FDR Power Project
(‘Project’).

BACKGROUND

“Section 2879 of the Public Authorities Law and
the Authority’s Guidelines for Procurement Contracts require the Trustees’
approval for procurement contracts involving services to be rendered for a
period in excess of one year.

“In accordance with the Authority’s Expenditure
Authorization Procedures, the award of non-personal services or equipment
purchase contracts in excess of $3,000,000, as well as personal services
contracts in excess of $1,000,000 if low bidder, or $500,000 if sole source
or non-low bidder, requires Trustees’ approval.

“Following the events of September 11, 2001, the
Visitors Center at the Robert Moses Power Dam was temporarily closed for
security reasons. A thorough security analysis of all Authority facilities
led to the decision to permanently close the Visitors Center. The decision
was made public in May 2002, at which time it was announced that a new
Visitors Center would be built at Hawkins Point across from the Project’s
tailrace with a view of the Moses-Saunders Power Dam. The Visitors Center
has long been a major tourism attraction in the North Country and its
presence has been missed in the region since its closing.

“In January 2003, staff authorized Acres
International Corporation (‘Acres’) in Buffalo, New York to develop a
conceptual design and preliminary cost estimates (Phase I) for a new
Visitors Center at Hawkins Point. Acres completed its work in June 2003.
The preliminary designs for the new building incorporate all of the
exhibits from the current Visitors Center, provide a magnificent view of the
entire Moses-Saunders Power Dam and include an outdoor area to host
community events.

“In October 2003, after a competitive bid
process, staff authorized Bernier Carr and Associates, PC (‘Bernier Carr’)
of Watertown, New York to develop a final detailed design (Phase II) for a
new Visitors Center. At their meeting of January 27, 2004, the Trustees
approved the expenditure of up to $5,160,000 for the design and construction
of the new Visitors Center. Bernier Carr completed its work in February
2004 and a public bidding process was initiated for construction of the
proposed facility.

“The final design for the new Visitors Center is
approximately 14,000 square feet, roughly the same size as the present
Center. It allows visitors to learn about the Authority, the Project and
environmentally acceptable energy use and conservation. The new Visitors
Center will be a partial two-story building, with the main floor dedicated
to public displays, as well as a theater and a community room. The basement
will house staff offices, storage and the mechanical and utility rooms.
Also, as part of the relicensing commitments for the Project, the Hawkins
Point area is to be enhanced with an improved boat ramp and parking and
construction of a handicapped-accessible fishing pier. The estimated cost
of the improvements is approximately $350,000, which will be provided under
the Recreational Plan previously authorized by the Trustees at their meeting
of December 16, 2003. The Recreational Plan improvement and Visitors Center
projects will be constructed at the same time.

DISCUSSION

“The bid document was advertised in the New York
State Contract Reporter on March 5, 2004, and issued to a total of 30
potential bidders. On March 17, 2004, a site visit to Hawkins Point was
conducted with 15 potential bidders for a question-and-answer session. A
total of seven addenda with several relicensing commitments were issued,
including modification of a boat ramp, a new parking lot and a
handicapped-accessible fishing pier. Two post-bid addenda were issued to
incorporate additional work on the fire protection water intake and
substitution of stone on the building facade.

“On April 7, 2004, five proposals were
received. Their as-received total lump sum amounts and the revised amount,
including post-bid addenda, for the two low bidders, were as follows:

BiddersTotal Bid PricesRevised Prices

1.H. Schickel General Contracting, Inc.
$3,454,000 $3,514,000

Malone, NY 12953

2.J.E. Sheehan Contracting Corp.
$3,510,180 $3,576,173

Potsdam, NY 13676

3.Bette & Cring Construction Group $4,053,800

Watertown, NY 13601

4.Murnane Building Contractors, Inc. $4,175,440

Plattsburgh, NY 12901

BiddersTotal Bid PricesRevised Prices

5.Tuscarora Construction Co., Inc.
$4,600,200

Pulaski, NY 13142

“An Evaluation Committee with representatives
from St. Lawrence Community Relations, Procurement and Project Management
reviewed the bids, analyzed their costs, schedules, construction methods,
negotiated terms and conditions and met with the two low bidders on April
26, 2004, to obtain additional information and clarifications. The
Authority’s engineer, Bernier Carr, conducted an independent evaluation of
the bids.

“Based on the meeting and review of the
proposals, it was agreed that both of the companies with the lowest
evaluated bid prices have the capability to construct the Visitors Center
within the schedule.

“A detailed analysis follows:

1.H. Schickel General Contracting, Inc. (‘Schickel’)

“Schickel has adequate staff and the necessary
construction equipment. The company’s annual business volume is
approximately $10 million, including bridge and prison construction in the
current year. The proposed organization chart and résumés of key personnel
were reviewed and found to be acceptable. A financial review was performed
and the results were favorable. The company’s Dun & Bradstreet rating is
3A2, with ‘3A’ indicating $1-10 million/year in strength and a ‘good’ for
composite credit appraisal. The review concluded that Schickel is dedicated
to quality performance. Schickel and J. Sheehan Contracting Corp. proposed
essentially the same vendors and subcontractors for mechanical and
electrical work. The Authority’s St. Lawrence Construction Superintendent
visited Schickel’s office and found an organization capable of completing
this project. The Authority’s engineer, Bernier Carr, contacted several
clients of Schickel and was informed that they had a good working
relationship with Schickel. The responses indicated that Schickel performed
satisfactorily. No exceptions in terms and conditions were taken by
Schickel.

2.J. Sheehan Contracting Corp. (‘Sheehan’)

“The proposed organization and résumés of key
personnel were reviewed and found to be acceptable. The company’s annual
business volume is about $15 million. It is anticipated that Sheehan would
have several other major projects running concurrently this summer with
construction of the Visitors Center. Sheehan has adequate resources to
fulfill its obligations for this contract. Sheehan’s Dun & Bradstreet
rating is 2R3, indicating a composite credit rating of ‘fair.’ Sheehan has
been used by the Authority on several projects, namely the Life Extension
and Modernization Office Building at the Project, the Massena Line Crew
Facility Building and, currently, repairs on the Long Sault Dike at the
Project. Sheehan’s performance has been acceptable. No exceptions in terms
and conditions were taken by Sheehan.

FISCAL INFORMATION

“Payments will be made from the Capital Fund.
The award amount of this contract is within the CEAR total of $5, 160,000.

RECOMMENDATION

“The Vice President – Project Management, the
Vice President – Procurement and Real Estate, the Regional Manager –
Northern New York and the Project Manager recommend that the Trustees
approve the award of a construction contract to H. Schickel General
Contracting, Inc. for the Visitors Center at Hawkins Point.

“The Executive Vice President – Power
Generation, the Executive Vice President, Secretary and General Counsel, the
Executive Vice President – Corporate Services and Administration, the Senior
Vice President – Public and Governmental Affairs, the Vice President –
Controller and Acting Chief Financial Officer and I concur in the
recommendation.”

The following resolution, as submitted by
the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for
Procurement Contracts adopted by the Authority, approval is hereby granted
to award a contract to H. Schickel General Contracting, Inc. for $ 3,514,000
to construct the St. Lawrence Power Project Visitors Center and Community
Improvements at Hawkins Point;

Contract AwardAward Amount

H. Schickel General Contracting,
Inc. $3,514,000

AND BE IT FURTHER RESOLVED, That the
Chairman, the President and Chief Executive Officer and all other officers
of the Authority are, and each of them hereby is, authorized on behalf of
the Authority to do any and all things and take any and all actions and
execute and deliver any and all agreements, certificates and other documents
to effectuate the foregoing resolution, subject to the approval of the form
thereof by the Executive Vice President, Secretary and General Counsel.

The President and Chief Executive Officer
submitted the following report:

SUMMARY

“The Trustees are requested to approve the award
of a procurement contract to C&S Engineers, Inc. for design services for an
eel ladder at the St. Lawrence/FDR Power Project (‘Project’). The term of
the contract will be from June 1, 2004, through December 31, 2006. The
total cost of the contract is $125,000.

BACKGROUND

“Section 2879 of the Public Authorities Law and
the Authority’s Guidelines for Procurement Contracts require the Trustees’
approval for procurement contracts involving services to be rendered for a
period in excess of one year.

“The Federal Energy Regulatory Commission
(‘FERC’) issued the New License for the Project on October 23, 2003. The
Trustees accepted the New License at their meeting of November 25, 2003. As
part of the new license, the Authority is required to install an upstream
passage facility (ladder) at the Robert Moses Power Dam (‘Power Dam’) to
facilitate the upstream migration of juvenile American eel. The license
requires that the ladder be constructed within two years of the effective
date of the new license, i.e., by November 1, 2005. At their meeting of
December 16, 2003, the Trustees authorized a total of $169 million for
expenditures related to compliance with the new license, including the costs
of designing an eel ladder at the Power Dam.

DISCUSSION

“To meet the requirements of the new license,
the Authority needs to hire an engineering design firm to develop a detailed
design for the eel ladder in 2004. The duration of the contract is through
2006 to allow for the Design Engineer’s support services during ladder
installation and any necessary support through the first year of operation.

“On March 22, 2004, the Authority issued a
Request for Proposal (‘RFP’) for the above services, including a notice in
the New York State Contract Reporter. Proposals were received from: (1)
Acres International Corporation in association with The Louis Berger Group
(‘Acres’); (2) Alden Research
Laboratory, Inc. (‘Alden’); (3) C&S Engineers, Inc. in association with
Milieu, Inc. (‘C&S’); (4) Kleinschmidt Associates, PA, PC (‘Kleinschmidt’)
and (5) PB Power in association with Normandeau Associates (‘PB Power’).

“Staff from the Authority’s Licensing,
Environmental and Procurement divisions and the Project evaluated the
proposals for technical qualifications and pricing. The initial review
focused on technical qualifications and proposed lump-sum prices. Based on
their technical qualifications and prices, the proposals from Acres, Alden
and PB Power were not given further consideration. The Kleinschmidt and C&S
price proposals were significantly lower than the other three proposals.

“It is recommended that the contract be awarded
to the lowest priced qualified bidder, C&S. C&S will team with Milieu, Inc.
(‘Milieu’) of LaPrairie, Quebec, Canada. C&S has successfully completed
engineering design work for the Project. Milieu successfully completed a
variety of studies at the Project related to eel behavior and design of eel
passage facilities, and has acted as a consultant in the design of eel
ladders at other hydropower projects on the St. Lawrence River and
elsewhere. Milieu provides the necessary practical biological expertise to
complement C&S’ engineering capabilities. The term of the contract would be
from June 1, 2004, through December 31, 2006; the award amount is $125,000.

FISCAL
INFORMATION

“Since these expenditures are related to
implementing commitments in the New License and the settlement agreements,
payments will be made from the Capital Fund.

RECOMMENDATION

“The Senior Vice President – Public and
Governmental Affairs, the Deputy Secretary and Deputy General Counsel, the
Vice President – Procurement and Real Estate, the Director – Environmental
Programs and the Regional Manager – Northern New York recommend that the
Trustees authorize award of a contract to C&S Engineers, Inc. for $125,000
for design services for an upstream passage facility for American eel (eel
ladder) at the Robert Moses Power Dam at the St. Lawrence/FDR Power
Project.

“The Executive Vice President, Secretary and
General Counsel, the Executive Vice President – Corporate Services and
Administration, the Vice President – Controller and Acting Chief Financial
Officer and I concur in the recommendation.”

Mr. Suloway presented an overview of staff’s
recommendation to the Trustees. In response to a question from Vice
Chairman McCullough, Mr. Suloway said that the contract is for design
services only. Chairman Ciminelli commented that the budget for the project
seems fairly low for a two-year project and Mr. Suloway explained that the
design of the eel ladder is a relatively simple design, but that staff wants
to have the contractor available for the construction phase of the project.
In response to a question from Trustee Seymour, Mr. Suloway said that the
total cost of the eel ladder will be approximately $1.5 million, including
design and monitoring.

The following resolution, as submitted by the
President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to the Guidelines for
Procurement Contracts adopted by the Authority, approval is hereby granted
to award a contract to C&S Engineers, Inc. for a period commencing on June
1, 2004, and ending on December 31, 2006, in an amount not to exceed
$125,000 for design services for an upstream passage facility for American
eel (eel ladder) at the Robert Moses Power Dam in compliance with the New
License for the St. Lawrence/FDR Power Project, as recommended in the
foregoing report of the President and Chief Executive Officer;

ContractorContract Approval

C&S
Engineers, Inc. $125,000

AND BE IT FURTHER RESOLVED, That the
Chairman, the President and Chief Executive Officer and all other officers
of the Authority are, and each of them hereby is, authorized on behalf of
the Authority to do any and all things and take any and all actions and
execute and deliver any and all agreements, certificates and other documents
to effectuate the foregoing resolution, subject to the approval of the form
thereof by the Executive Vice President, Secretary and General Counsel.

The President and Chief Executive Officer
submitted the following report:

SUMMARY

“The Trustees are requested to authorize the
Vice President – Energy Resource Management to execute an amendment to the
Capacity Supply Agreement (‘CSA’) between the Authority and Long Island
Lighting Company (a subsidiary of the Long Island Power Authority, d/b/a ‘LIPA,’
hereinafter referred to as ‘LIPA’) providing for, among other things: (1)
new energy pricing terms and conditions associated with the sale of
electricity from the Richard M. Flynn Power Plant (‘Flynn’); and (2) an
extension of the term of the CSA to 2020. The new energy pricing
arrangements would ensure savings to Long Island ratepayers and provide the
Authority with the opportunity to fully recover Flynn gas costs.

“The Trustees are also requested to authorize,
upon the execution of the amendment discussed above, the acquisition by
purchase or appropriation of approximately six acres of property, in
addition to any areas, easements and/or other property interests necessary
or convenient for the full enjoyment of the fee acquisition, from KeySpan
Gas East Corporation (‘KeySpan GE’) for the premises upon which the Flynn
plant (‘Flynn Property’) is located.

BACKGROUND

“On May 10, 1991, the Trustees approved a lease
(‘Lease’) with the Long Island Lighting Company (‘LILCO’). The Lease
premises consisted of approximately six acres of land for construction and
operation of the Flynn plant. The Lease expiration date of April 30, 2014
is co-terminus with the expiration date of the CSA. On May 28, 1998: (1)
the LIPA acquired LILCO, along with its electric transmission and
distribution system, as well as other assets associated with electric
operations; and (2) MarketSpan Corporation (subsequently renamed KeySpan
Corporation) became the parent holding company of various subsidiaries,
including KeySpan GE, which now own the electric generation, gas
transmission, supply and distribution and other assets formerly owned by
LILCO, including the Lease and the Flynn Property. For purposes of the
Lease, the Authority now transacts with KeySpan GE. For purposes of the
CSA, the Authority now transacts with LIPA.

“Pursuant to the CSA, the Authority sells the
full output of Flynn to LIPA. Due to the relatively high cost of gas
reflected in the pricing provisions of the CSA, Flynn would have operated at
a very low capacity factor when it began service in 1994. As this was not
in the interest of the Authority nor the ratepayers of Long Island, the
Authority and LILCO negotiated amendments to the CSA in 1994 and 1997
(‘Amendment No. 1 and No. 2’) that ensured that: (1) Flynn would operate at
a high capacity factor; and (2) the Authority would recover a greater
portion of its gas costs than would have been realized under the CSA. Both
amendments were approved by the Trustees.

“Amendment No. 3, which was signed in September
1998, addressed price adjustments to account for the gas compressors
installed as a result of Amendment No. 2. Amendment No. 4 modified the CSA
to recognize the transfers of the LILCO transmission and distribution
systems to LIPA and of the LILCO gas system to the KeySpan Corporation.

“Amendment No. 5, which was approved by the
Trustees at their meeting of December 19, 2000, specified that the daily
energy price for all Flynn energy would be the lesser of: (1) the market gas
price as defined therein (which is essentially the equivalent of the
Authority’s gas costs); or (2) 95% of the 24-hour average of the day-ahead
market (‘DAM’) price for the New York Independent System Operator’s
(‘NYISO’) Long Island zone. To the extent that 95% of DAM price applied for
any day, the Authority under-recovered its gas cost. Amendment No. 5 also
provided for a monthly shared-savings arrangement that provided the
Authority with the opportunity to recover all or a portion of its
uncollected gas costs to the extent that LIPA’s energy cost savings from
Flynn were above 20% for a month. Amendment No. 5 became effective on
January 1, 2001, and was scheduled to expire December 31, 2002, but was
extended by the Authority and LIPA pending finalization of the proposed
amendment.

“The Authority had entered into an agreement
(the ‘Enron contract’) with Enron Gas Marketing, Inc., a subsidiary of the
Enron Corporation (‘Enron’) on October 24, 1990 for supply of firm gas at a
fixed price for operation of the Flynn plant. This agreement was
subsequently modified on April 1, 1994. As explained above, the Authority
has not always been able to recover all the costs associated with the Enron
contract. A portion of these losses have been offset by the fixed capacity
payments made by LIPA under the CSA. The shared-savings arrangement under
Amendment No. 5 provided additional revenues to help offset the gas-related
losses. As a result of the financial difficulties of Enron and its
subsidiaries, and pursuant to the provisions of the Enron contract, the
Enron contract was terminated by the Authority in December 2001.

DISCUSSION

“Authority staff has been negotiating a
successor agreement to Amendment No. 5 with LIPA for capacity and energy
from the Flynn plant. Due to the significant payments made by LIPA to the
Authority for 2002 under Amendment No. 5, LIPA made it clear that it did not
wish to extend the terms of that amendment. In addition, LIPA is aware of
the Authority’s senior bond restructuring resulting from the 1998 refunding
of the Authority’s General Purpose Bonds and the additional savings that
flowed from that restructuring through lower debt service costs and the
elimination of the bond reserve requirement.

“A proposed amendment of the CSA was approved by
the Trustees at their meeting of March 20, 2003, but subsequent to such
authorization, additional issues arose relating to the proposed amendment
that necessitated further negotiation with LIPA. The proposed amendment now
before the Trustees (hereinafter referred to as ‘Amendment No. 6’) is the
product of these negotiations.

“The major terms of Amendment No. 6 are set
forth in Exhibit ‘11-A,’ attached hereto. The following is a brief summary
of key elements of these terms.

“Under Amendment No. 6, the Monthly Capacity
Payment to be paid by LIPA to the Authority under the CSA would be reduced
by $250,000 each month, or $3 million on an annual basis. The Authority
would continue to be bound by the performance requirements contained in the
CSA (which may increase or decrease the Monthly Fixed Payment payable to the
Authority).

“Half of the amount of aggregate annual capital
expenditures greater than $10 million incurred by the Authority at Flynn
would be repaid by LIPA, with interest, in equal monthly installments over a
period ending April 30, 2020, provided, however, that if LIPA has not
consented to a particular capital expenditure, then LIPA would not be
required to reimburse the Authority for such expenditure. If the pricing
structure of Amendment No. 6 is terminated, repayment of the remaining
capital expenditure amounts owed by LIPA would be limited to those amounts
in each year due from LIPA that are greater than $3 million, plus interest.
If the CSA is terminated by either party on April 30, 2014, the remaining
capital expenditure amounts owed by LIPA would be paid upon termination.

“While the Authority would continue to bear the
risks associated with natural gas purchasing under Amendment No. 6, the
Authority would be paid compensation for its gas costs based on a comparison
of: (1) a market-based gas cost, as translated into a
dollars-per-megawatt-hour (‘$/MWH’) figure derived from the Flynn plant’s
operating characteristics; and (2) the 24-hour average NYISO DAM price for
the Long Island zone (the ‘Daily Average NYISO Price’). The market-based
gas cost for a particular month would be equal to an average of certain
specified gas market prices, plus a 10% markup (the ‘Marked-Up Gas Price’).
The Marked-Up Gas Price would then be translated into a $/MWH amount, and a
surcharge of $0.80 per MWH would be added to produce the NYPA Locational
Based Marginal Pricing (‘LBMP’) Bid Price. If, on a particular day, the
NYPA LBMP Bid Price is lower than the Daily Average NYISO Price, then the
Authority would receive the NYPA LBMP Bid Price. If, however, the NYPA LBMP
Bid Price is greater than the Daily Average NYISO Price, the Authority would
receive 95% of the Daily Average NYISO Price.

“LIPA would be obligated to assure that the
Flynn plant is bid into the NYISO market as a ‘must-run’ unit for all hours
of the day. Also, certain gas balancing expenses that were previously not
recoverable under the CSA and prior amendments would now be recoverable from
LIPA under Amendment No. 6. The Authority is currently paying $ 1.5 million
(excluding taxes) annually to KeySpan Energy Services for such gas balancing
services. Under Amendment No. 6, LIPA would pay half of such gas balancing
costs up to a maximum per year of $750,000 plus applicable taxes.

“Another issue addressed by Amendment No. 6
concerns the Enron contract. Although the Enron contract has been
terminated by the Authority, it is now part of the Enron bankruptcy
proceeding. Moreover, assertions have been made that the Authority owes
payments to an Enron subsidiary as a result of such termination. Staff
believes that it has meritorious defenses against any attempt in the
bankruptcy proceeding or otherwise to declare the termination invalid or to
require the Authority to make payments related to the terminated contract.
However, the Authority staff believes that the 10% markup, discussed above,
provides reasonable protection against the Enron contract exposure posed by
the bankruptcy proceeding.

“The shared-savings arrangement under Amendment
No. 5 would continue under Amendment No. 6 with two changes. First, the
shared savings that the Authority could realize would be capped at $5
million per year. Authority shared-savings revenue in 2002 was $2.8 million
and in 2003 was $800,000. Second, the shared-savings methodology would
operate on a daily basis instead of a monthly basis.

“The pricing provisions of Amendment No. 6 would
be effective from January 1, 2004 to December 31, 2008, and would then
continue unless terminated by either party on January 1, 2009 upon at least
six months’ prior notice.

“Amendment No. 6 would also extend the CSA from
April 30, 2014 to April 30, 2020, provided, however, that either party could
terminate the extension upon notice given no later that April 30, 2012.

“The extension would bring the effective date of
the CSA beyond the expiration date of the Lease. Since the Authority’s
rights as lessee under the Lease would be terminated on April 30, 2014 and
under the terms of the Lease, the Flynn plant would have to be dismantled
upon Lease termination, all debris removed and the site restored to its
original condition, the Authority staff recommends, upon execution of
Amendment No. 6, that the Flynn Property be acquired and, in addition, that
any easements, areas and/or other property interests necessary or convenient
for full enjoyment of the fee acquisition.

FISCAL INFORMATION

“The changes to the pricing arrangements
embodied in Amendment No. 6 are designed to provide continued savings to
Long Island ratepayers and to provide the Authority with positive net
revenues from operation of the Flynn plant.

“Payment for any acquisition of the Flynn
property will be made from the Authority’s Capital Fund or from the proceeds
of debt issued for such purpose.

RECOMMENDATION

“The Manager – Fuel Planning and the Senior
Business Planner recommend that the Trustees authorize the Vice President –
Energy Resource Management to execute an amendment to the Capacity Supply
Agreement having such terms and conditions as he deems necessary or
advisable and as are consistent with the terms set forth in Exhibit ‘11-A,’
attached hereto, provided that any such terms and conditions be subject to
the approval as to the form thereof by the Executive Vice President,
Secretary and General Counsel or his designee.

“The Vice President – Energy Resource
Management, the Vice President – Contracts and Real Estate and the Flynn
Project Manager recommend the Trustees authorize, upon execution of
Amendment No. 6, the Vice President – Contracts and Real Estate or his
designee to take all steps necessary to acquire by purchase or appropriation
the fee area of approximately six acres upon which the Flynn plant is
located and, in addition, to acquire any easements, areas and/or other
property interests necessary or convenient for the full enjoyment of the fee
acquisition; and to further delegate to the Chairman and/or the President
and Chief Executive Officer the authority to approve the payments to be made
for the acquisition of the Flynn Property and associated easements, areas
and/or other property interests.

“The Executive Vice President – Power
Generation, the Executive Vice President, Secretary and General Counsel, the
Executive Vice President – Corporate Services and Administration, the Vice
President – Finance and I concur in the recommendation.”

The following resolution, as submitted by
the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Vice President – Energy
Resource Management be, and hereby is, authorized to execute an amendment to
the Capacity Supply Agreement (“Amendment No. 6”) between the Authority and
the Long Island Lighting Company, Inc., d/b/a “LIPA,” having such terms and
conditions as he deems necessary or advisable and as are consistent with
terms set forth in Exhibit “11-A” hereto, subject to the approval as to the
form thereof by the Executive Vice President, Secretary and General Counsel
or his designee; and be it further

RESOLVED, That pursuant to the provisions of Article 5, Title 1 of the
Public Authorities Law, the Authority hereby finds that upon execution of
Amendment No. 6, it is necessary or convenient to acquire in fee simple or
leasehold, by purchase, appropriation, or transfer of jurisdiction the real
property on which the Flynn plant is located, including any permanent or
temporary easements, areas or other interests that are necessary or
convenient for the full enjoyment of the Flynn plant property, and hereby
finds and determines that such real property is required for public use; and
hereby determines that such real property is reasonably necessary for the
maintenance, operation, repair or renovation of the Flynn plant; and be it
further

RESOLVED, That the Vice President – Contracts and Real Estate or his
designee be, and hereby is, authorized to take all steps necessary or
convenient to acquire by purchase, appropriation, or transfer of
jurisdiction the fee area upon which the Flynn plant is located, including
areas, easements, and/or other interests necessary or convenient for the
full enjoyment of the Flynn plant property (collectively, the “Flynn
Property”), in the event that Amendment No. 6 is executed, subject to the
approval of the form thereof by the Executive Vice President, Secretary and
General Counsel; and be it further

RESOLVED, That the Chairman and the President and Chief Executive Officer
be, and each hereby is, authorized to approve the payments to be made for
the acquisition of the Flynn Property; and be it further

RESOLVED, That the Authority’s Series 1, Series 2 or Series 3 Commercial
Paper Notes or the Authority’s Series 1 Extendible Municipal Commercial
Paper Notes may be issued to finance the Flynn Property acquisition costs
discussed in the foregoing Resolution; and be it further

RESOLVED, That the foregoing resolutions supercede the resolutions adopted
by the Trustees on this matter on March 20, 2003; and be it further.

RESOLVED, That the Chairman, the President and Chief Executive Officer and
all other officers of the Authority are, and each of them hereby is,
authorized on behalf of the Authority to do any and all things and take any
and all actions and execute and deliver any and all agreements, certificates
and other documents to effectuate the foregoing resolutions, subject to the
approval of the form thereof by the Executive Vice President, Secretary and
General Counsel.

Exhibit
“A”

February 24, 2004

Amendment
No. 6 to Capacity Supply Agreement

Term Sheet

The current Capacity Supply Agreement (“CSA”) will
be extended to April 30, 2020. Both the Authority and LIPA will have the
option of terminating the extended CSA effective April 30, 2014, upon
prior written notice, with such notice to be given no later than April
30, 2012.

The Amendment No. 6 pricing provisions, described
below, will be in effect from January 1, 2004 to and including December
31, 2008, with either party having the right to terminate such pricing
provisions on January 1, 2009 upon at least six months’ prior notice. If
such termination notice is given and no alternative pricing structure
has been agreed to, the pricing structure set forth in Appendices D and
E of the CSA will apply.

During the term of Amendment No. 6, the pricing
provisions are as follows:

(a)The Monthly Capacity Payment related to debt service set forth in
Appendix D (Section B, Paragraph 1) of the CSA will be reduced $3 million
per year ($250,000 per month).

(b)Certain capital expenditures incurred by the Authority at the Flynn
plant shall be repaid by LIPA as follows:

(1) Half of the amount of
aggregate annual capital expenditures incurred by the Authority greater than
$10 million shall be repaid, with interest, in equal monthly installments
over a period ending April 30, 2020, provided, however, that if LIPA has not
consented to a particular capital expenditure, no reimbursement from LIPA
shall be required relating to such expenditure.

(2) The interest rate used
shall be 5.1%, unless the capital expenditure is funded by debt, whereupon
the interest rate shall be at the rate of the new debt issue.

(3) If the pricing structure
of this Amendment No. 6 is terminated, repayment of the remaining capital
expenditure amounts as set forth above shall be limited to those amounts in
each year due from LIPA that are greater than $3 million, plus interest. If
the CSA is terminated by either party on April 30, 2014, the remaining
capital expenditure amounts owing from LIPA shall be paid upon such
termination in a lump sum payment.

(4) If during the period
through April 30, 2020 the Flynn plant is derated, the installment payments
for capital expenditures referenced above will be pro-rated based on the
level of the derate.

(c) (i) The Gas Price Formula
set forth in Appendix D (Section C, Paragraph 1) of the CSA, as previously
amended by Amendment No. 5, will be modified so that the tiered pricing
structure will be replaced with a fixed 10% markup to the Commodity Price,
as defined below. Other provisions of the pricing formula set forth in
Amendment No. 5, which include fuel retention, variable transportation,
tariff surcharges and local transportations, will remain in effect in order
to develop the Authority Market-Based Gas Cost. “Commodity Price” means the
per dekatherm price equal to the simple arithmetic average of the following
two amounts: (1) the simple arithmetic average of the New York Mercantile
Exchange (“NYMEX”) settlement price for the prompt month contract on the
last three trading days prior to the month of delivery; and (2) the price
reported for Transcontinental Gas Pipe Line Corporation Zone 3 pooling
points in the first issue of Inside FERC’s Gas Market Report for the
month of delivery in the table entitled “Prices of Spot Gas Delivered to
Pipelines” under the column labeled “Index.”

(ii) Once the Authority
Market-Based Gas Cost is converted to a cost per MWH, there will be added to
such converted Gas Cost 80 cents per MWH to produce the NYPA LBMP Bid Price.

(iii) If the monthly NYPA
LBMP Bid Price is less than or equal to the NYISO 24-hour average DAM price
for the Long Island zone for a particular day, the Authority will receive
the NYPA LBMP Bid Price for that day.

(iv) If the monthly NYPA
LBMP Bid Price is greater than the NYISO 24-hour average DAM price for the
Long Island zone for a particular day, the Authority will receive 95% of the
DAM price for that day.

(d) LIPA will pay one-half of
all gas balancing expenses for the Flynn plant, up to a maximum per year of
$750,000 plus applicable taxes.

(e) All performance
incentives and penalties relating to Flynn’s availability factor will remain
at the levels currently specified in the CSA.

(f) The shared-savings
provision of Amendment No. 5, as modified below, will remain in place. The
shared-savings calculation will be done on a daily basis. LIPA would keep
the first 20% of the monthly savings, and the remaining savings would be
split equally. The annual shared savings paid to the Authority would be
capped at $5 million per year. The shared-savings calculation would be based
on the NYPA LBMP Bid Price, and the 24-hour average DAM price discussed
above. At no time when developing the shared-savings number will there be a
negative shared-savings number incorporated into the daily calculation.

(g) The Authority staff shall
purchase the natural gas for LIPA for the Flynn plant. The Authority will
have the option of executing its own hedging strategies based on Authority
financial strategies and parameters. If both parties agree, joint gas
purchasing or hedging strategies can be implemented.

(h) LIPA will ensure that the
Flynn plant is bid into the NYISO-administered markets so as to have the
facility dispatched as a “must run” unit for all available hours every day,
in accordance with NYISO rules. The bidding strategy will make every attempt
to minimize the number of starts and stops that the plant will experience.

The next Regular Meeting of the Trustees will be
held on Tuesday, June 29, 2004, at 11:00 a.m.,at the Clark Energy
Center, unless otherwise designated by the Chairman with the concurrence of
the Trustees.